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What can a business expect in a bankruptcy liquidation?

There are numerous options available for businesses facing financial difficulties. However, a business may ultimately have no choice but to assign itself into bankruptcy as its only option under the Bankruptcy and Insolvency Act.

As a result of the assignment, a bankruptcy trustee is appointed. That trustee will take control of and sell the property of the business. It will also distribute the sale proceeds of those sales to the creditors of the business. The trustee will also determine which creditors are eligible to recover a share of the proceeds based upon the proof of claim filed by each creditor as well as the guidelines provided by the BIA.

The BIA also sets out the priority in which creditors will receive the proceeds. In most cases, that priority is as follows:

  • Wage and pension claims;
  • Government authorities, such as Canada Revenue Agency, for certain statutory trusts;
  • Secured creditors;
  • Certain classes of preferred creditors; and
  • Unsecured creditors

There are many issues that could arise in the bankruptcy process. Accordingly, it is critical that businesses considering bankruptcy do so with the assistance of a lawyer who has a thorough understanding of the process.

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